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Time Warner Cable Inc (TWC) and the End of Broadcast Television

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Time Warner Cable Inc (NYSE:TWC) and its CEO Glenn Britt are thinking about killing broadcast television for good.

There was a time – as recently as four weeks ago – where the broadcast networks were worried about their signals being digitally relayed. A small startup named Aereo was doing so and winning court battles about it. It meant that consumers of television could get broadcast signals via the Internet and time shift and such to avoid commercials. This threatened the dominance of the broadcast networks to the point where some execs threatened to take their networks cable-only.

Time Warner Cable Inc (NYSE:TWC)

As long as it was just one small firm in 2 markets – soon to be 22 – it was something that could be dealt with. Even as it was losing battles in court, the industry was still claiming that what Aereo was doing was illegal. But if Time Warner Cable Inc (NYSE:TWC) and it’s more than 12 million subscribers gets involved that could be a whole other matter. This could become an existential threat to the broadcast television industry.

Sitting…waiting…

Time Warner Cable

12-month growth P/E EPS Dividend
Yield
Net
Margin
18.57% 13.90 6.88 2.72% 10.10%

Glenn Britt’s idea of copying Aereo’s systems weren’t the only way he raised controversy. He also took a shot at the idea of bundling networks on cable. That’s the system whereby for a cable system to get access to a popular network – ESPN, as an example – the system must also buy several less popular networks and pass that charge along to customers. Bundling allows content providers to sell more of their less popular shows that otherwise might not sell.

Speaking against both of these things makes Britt less than popular with both the broadcast and cable networks. It’s an interesting take on where the industry is heading. Speaking for myself, I suspect he’s right. Increased access to high-speed Internet gives viewers more choice. Those reacting against it are doing so because they know their means of profit is threatened. But that won’t hold back the tide.

For the investor, Time Warner Cable Inc (NYSE:TWC) looks to be a good, solid play. The company is traditionally profitable and is one of the largest cable companies in the country. Plus, if Britt is serious, there’s a plan for the company to adapt to the new technological revolution. Combine that with a slightly low P/E, a good EPS and a very good dividend and I think Time Warner Cable Inc (NYSE:TWC) is a bit undervalued. It’s worth picking up.

“Back!”, said Canute, to the sea!

On the other end of the equation we have … well … everyone else, mostly. Broadcast television executives are threatening to simply take their networks off the air and make them cable only.

CBS Corporation (NYSE:CBS)
12-month growth P/E EPS Dividend
Yield
Net
Margin
37.93% 19.08 2.48 1.01% 11.85%

The biggest problems that large networks have is that there’s simply not enough advertising dollars to justify the costs of the big network shows…not on cable, anyway. The amount of ad dollars can be seen – depending on how one cuts the pie – as in the same ballpark, but on broadcast it’s cut much fewer ways. If CBS Corporation (NYSE:CBS) goes through with its threat to go cable-only it should be prepared to see a drop in revenue as it becomes part of a much more crowded market space.

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